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2018 Farm Bill Signing Impacts Hemp and CBD Markets

January 3, 2019

In late December, the President signed the 2018 Farm Bill, bringing America to the eve of full hemp legalization. The 2018 Farm Bill removes hemp from the Controlled Substances Act, which had defined all parts of a cannabis plant and its derivatives as a Schedule I substance. The 2018 Farm Bill legalizes hemp by redefining cannabis plants with a THC content of no more than 0.3% (i.e., hemp) to exclude these plants from the Controlled Substances Act.

Previously, the hemp market was tentatively legalized through the 2014 Farm Bill, which granted states the ability to create hemp pilot programs. Although the pilot programs allowed for the development of a market, other laws regulating cannabis and the patchwork of state programs were serious impediments to growth. Moreover, a pilot program, by its very nature, can be ended with little warning, making capital investment risky. Wisconsin has been operating under such a pilot program in 2018.

The 2018 Farm Bill removes this uncertainty by redefining hemp, as well as making several other key changes that will greatly expand the commercial hemp market. The bill allows farmers to pursue federal hemp cultivation permits while permitting states to submit individual plans to regulate hemp production. The bill also opens the interstate market for hemp products by barring states from passing individual plans that interfere with interstate transport of hemp products.

Full legalization will have myriad impacts on businesses involved at all levels of the hemp market. Farmers, processors, distributors, and retailers will finally have the certainty they need to expand their businesses and commit fully to the market. Specifically, hemp-related businesses will now have full access to financial services, including loans, investment, and insurance. They will also have unfettered access to nationwide logistical services, labor pools, and consumer markets. The ability to move hemp across the nation will also increase access to processors. In addition, legalization brings new advertising opportunities and gives retailers more freedom in the variety of hemp products they can sell. In order to take advantage of these developments, hemp businesses will need investment, which will be increasingly available due to the new legal stability. Hemp businesses may even be able to list on U.S. stock exchanges.

The 2018 Farm Bill does not, however, remove all uncertainty in the CBD market. The bill is not exhaustive and fails to thoroughly address the legality of CBD. While the bill removes hemp and its derivatives from the Controlled Substances Act, CBD remains under the regulatory auspices of the Food and Drug Administration (FDA), which may limit the marketing and sale of CBD products. Given the changes to the legality of hemp and the grown of the CBD market, there will need to be CBD-specific legislation and rulemaking under FDA guidelines.

The 2018 Farm Bill is predicted to benefit participants in the adult use and medical cannabis markets, as well. Newly-legalized hemp and the still-outlawed high-THC cannabis are the same plant, meaning innovations in hemp production, processing, distribution, and sale will translate to other cannabis products. Accordingly, investment in hemp is, in many ways, an investment in the greater future of cannabis.

Even before passage of the 2018 Farm Bill, hemp was already becoming a multi-billion dollar agricultural industry. With this step, the hemp industry is growing from infancy to young adulthood. New challenges will accompany new opportunities as market participants navigate the evolving market and regulations. If you have questions how these developments impact your business plans, Axley is ready to provide the legal guidance you need.

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